By: John Bee, Managing Director, White Space Strategy
Should prices be the same in Oxford as they are in Macclesfield? What about in Berlin vs in Hamburg, roughly the same distance apart, and also very different worlds economically.
I’ve had this debate with marketing directors and MDs in the UK many times over the years and, in general, regional pricing has been viewed unfavourably by most of them. This article explores the concept further, looking at some real world examples: should companies charge different prices in different areas, or is this a terrible idea in practice?
Reasons for and against
The usual objection to regional pricing focuses on the potential media backlash: people will be up in arms if we charge customers more in some cities for exactly the same products. Technical challenges also exist, with regional pricing creating complexity. They’re hard, if not impossible, to implement online, and make it hard to run national advertising campaigns which include prices.
However, a strong case can be made the other way: it’s unfair to charge customers the same for goods in cities where they cost a lot less to deliver (because of lower rents and labour costs). And, pragmatically, purchasing power’s lower in some cities. To compete, businesses need to align prices with this, by passing on their local cost savings to customers.
Oxford & Macclesfield: regions apart?
2023’s going to be an extremely challenging year, with regional differences growing as the cost-of-living-crisis deepens in for businesses and consumers. I think regional pricing could become more relevant in this environment. I therefore decided to explore it in practice, by looking into what’s happening on the ground right now. I took a trip to Macclesfield in the north of England and compared some prices with those in my home city of Oxford. For context, the average salary in Oxford is ~£35k compared with ~£30k in Macclesfield.
First up for comparison: M&S. Everything I was able to compare was exactly the same price in Oxford and Macclesfield. This included dresses, chinos and cheese.
Next up: Pumpkin at the respective train stations. Identical prices for everything (including coffees, teas, drinks and crisps).
Costa: identical prices for everything. £3.05 for a small cappuccino in both places (significantly more than at local cafes in Macclesfield, as we’ll come onto shortly).
It got more interesting at Boots. It looked like they have the same base prices in Oxford and Macclesfield, but are discounting differently on a few items. Counterintuitively, discounting looked to be more common in Oxford. For instance, Oral B Pulsar electric toothbrushes were half price in Oxford, but not in Macclesfield. The first photo was taken in their Oxford store. The second was taken in Macclesfield the day before:
And for toothpaste, half price in Oxford (first photo) but full price in Macclesfield (second photo):
Theoretically, the promotions could have been introduced that day (I visited the two Boots stores on consecutive days). I asked a shop assistant in Oxford about this and was told they’ve been on for a while, indicating this wasn’t the case.
So, based on this admittedly small sample size, it looks like national chain retailers are either using the same prices regionally (at least in Oxford and Macclesfield), or are tailoring slightly using discounting.
What about local independents? The story with them is different. I visited two similar independent cafes, both just off the main shopping drags. A cappuccino in Macclesfield was £2.50. In Oxford it was £2.90, or 16% more. The difference was bigger for instant photos: £5 for ten 6×4 prints in Macclesfield £7.50 in Oxford (50% more). And for cod & chips: £8 at the Waters Green Fish Bar in Macclesfield vs. £9 at the Atlantic in Oxford (13% more). These businesses seem more responsive to their local market: wages and rents are significantly lower in Macclesfield, and so are prices.
Conclusion: should you adopt regional pricing? If so, how?
So local shops price locally, reflecting their lower cost bases and local purchasing power. National chains generally don’t. Are they missing a trick?
Possibly not. I think the ‘PR backlash’ objection is valid: any company moving to regional pricing would have to think hard about how they would explain this to customers (and to the Daily Mail). Also, it’s possible that customers value national chain offerings more in less affluent areas. They might also buy in greater volume un them, effectively reducing cost to serve. This could explain why Boots appeared to be discounting less heavily in Macclesfield than in Oxford.
I can’t see an easy way to implement regional pricing online, unless different brands are used to target different areas (which feels clunky and inefficient). Finally, there’s a risk that regional pricing unwittingly undermines the levelling up agenda: the ultimate aim is for less affluent areas to become more prosperous, and able to afford the same prices as people can elsewhere in the country.
But, I think the balance will tip in 2023. The cost-of-living crisis will have a much greater impact in some regions than others, affecting local cost bases and purchasing power differently. By continuing to set national prices, national chains will become uncompetitive in less affluent areas, and will potentially exacerbate the cost of living crisis in them. Local independents are likely to be more in touch with the realities of their market, and supportive of cost of living.
Cometh the hour, cometh the idea?
How should larger corporates go about implementing regional pricing?
Any company moving in this direction needs to be smart about it – and also fair. There are always less affluent people in more affluent cities – and less affluent towns in more affluent regions. Varying prices just for non-essential or luxury goods feels fair. And selectively using discounting locally (against flat national base prices) feels most resilient to a PR backlash. Also, be open about what you’re doing and explain the reason: to pass on your own cost savings to customers in areas where prices are lower.
For help developing your company’s pricing strategy, feel free to contact John Bee, White Space Strategy Managing Director: email@example.com.
About the author:
Managing Director, White Space Strategy
John founded White Space Strategy in 2005, and has worked on over 300 growth strategy projects worldwide.
White Space Strategy was named as one of the UK’s leading strategy and innovation consultancies by the Financial Times in 2021 and 2022.
He is currently also working with Oxford University within their UN Sustainable Development Goals Impact Lab, and has lectured at Warwick Business School.